Long-term work contracts versus sequential spot markets: Experimental evidence on firm-specific investment
AbstractDismissal rules, i.e. legally enforced long term contracts, have beem defended against criticism for, among other things, providing efficient incentives to invest in relationship specific skills. However, in many situations efficient investment can also be attained by spot contracts. We replicate such a situation with our experimental design based on a simple two period game, involving the choke of the contract; length by the principal and an investment choke by the agent. In contrast to the game theoretic predictions, we find that investment of the worker and length of contract; are strictly positively correlated. We interpret our finding as an indication for a perceived market risk due to other players' actions although the model is fully deterministic. This could imply a behaviorally relevant difference between contract and market administered incentives. --
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Bibliographic InfoPaper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 1999,43.
Date of creation: 1999
Date of revision:
principal agent; experiment; specific human capital;
Other versions of this item:
- Anderhub, Vital & Konigstein, Manfred & Kubler, Dorothea, 2003. "Long-term work contracts versus sequential spot markets: experimental evidence on firm-specific investment," Labour Economics, Elsevier, vol. 10(4), pages 407-425, August.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
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